South Korea: Analysts maintain BUY rating on HiteJinro
KB Securities maintain BUY on HiteJinro but raise their target price by 4.8% (KRW42,000→KRW44,000), as they revise up 2022E/2023E operating profit (OP) by 7.6%/8.8%, Businesskorea reported on May 16.
The analysts expect increases in both volume and profit margin, as (1) demand at restaurants/bars has been growing since the full lifting of social distancing rules on April 18 and (2) ex-work prices for soju/beer were raised in February/March. The company has already stocked sufficient malt inventory for the year at low prices via 2020 contracts.
HiteJinro posted 1Q22 consolidated revenue of KRW583.7 bln (+9.1% YoY, +7.1% QoQ) and OP of KRW58.1 bln (+9.8% YoY, +72.4% QoQ, 10.0% OPM), which is in line with the market consensus of KRW54.3 bln. Restaurants/bar operations have been recovering with the gradual phasing out of social distancing rules that began on January 17 (e.g., increase in no. of people in private gatherings; longer business hours). Also, earnings improved on speculative demand for beverage products ahead of price hikes (beer revenue/OP +5.2%/-4.0% YoY; soju revenue/OP +9.6%/+10.6% YoY).
KB Securities believe revenue in April declined MoM on a drop in speculative demand in March, but pent-up demand should materialize going forward. HiteJinro aims to boost its beer market share, particularly for Terra, whose sales are strong at restaurants/bars. It is also targeting higher soju market share in local cities, making use of Chamisul’s strong brand recognition and market dominance; 2022 guidance on market share for beer is 40% (from 37%) and soju 68% (from 67%). Marketing costs may increase in 2Q-3Q22, but the analysts believe high operating leverage (high proportion of fixed costs industry-wide) should offset this.
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